§708-874  Misapplication of entrusted
property.  (1)  A person commits the offense of misapplication of entrusted
property if, with knowledge that he is misapplying property and that the
misapplication involves substantial risk of loss or detriment to the owner of
the property or to a person for whose benefit the property was entrusted, he
misapplies or disposes of property that has been entrusted to him as a
fiduciary or that is property of the government or a financial institution.



(2)  "Fiduciary" includes a trustee,
guardian, personal representative, receiver, or any other person acting in a
fiduciary capacity, or any person carrying on fiduciary functions on behalf of
a corporation or other organization which is a fiduciary.



(3)  To "misapply property" means to
deal with the property contrary to law or governmental regulation relating to
the custody or disposition of that property; "governmental
regulation" includes administrative and judicial rules and orders as well
as statutes and ordinances.



(4)  Misapplication of property is a
misdemeanor. [L 1972, c 9, pt of §1; am L 1976, c 200, pt of §1]



 



COMMENTARY ON §708-874



 



  This section is intended to discourage both knowing violation
of fiduciary obligations and knowing misapplication of property belonging
either to the government or to a financial institution.  In this context the
misapplication is in terms of improper and reckless investment or handling of
assets, rather than of outright theft.  For purposes of this section, a
fiduciary includes any person (including a corporation) acting in a fiduciary
capacity for another person, and a person acting in a fiduciary capacity on
behalf of a corporation or organization which is itself a fiduciary.  The
requirement of knowledge extends to the substantial risk of loss or detriment
to the owner.



  Misapplication in this context is not theft; there is no
intent permanently to deprive the owner of the owner's property.  Moreover, the
actor does not misappropriate funds, unless there is a specific duty to make
payment to someone else.  The danger envisioned is the risk "that one who
administers or controls the property may deliberately depart from the legal
rules applicable to his control of the property in question and may gamble with
the property at considerable known risk to the safety of the property in
question."[1]



  Existing law provides that a trust company that violates,
neglects, or refuses to comply with statutory requirements relating to trusts,
and an officer, manager, director, or employee who knowingly participates in
such violation, commits a misdemeanor if it or he, as the case may be, fails to
desist from the practice within seven days following notification by the
Director of the Department of Regulatory Agencies.[2]  The provision is designed
to accomplish certain regulatory ends.  The Penal Code does not propose to
abolish the regulatory provision; it will, however, in aggravated cases,
provide for a direct, unconditional penalty.  Where (1) the actor acts
knowingly (as opposed to negligently), and (2) the violation of a statutory or
administrative requirement amounts to a misapplication of entrusted property
(as opposed to violating some other requirement related to trust
administration), the warning period is eliminated.  There is no need for a
warning period if criminal liability is not strictly imposed or predicated on
negligence.



 



Law Journals and Reviews



 



  Student Symposium:  Legal Malpractice, 14 HBJ No. 1 Spring
1978, pg. 3.



 



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§708-874 Commentary:



 



1.  Prop. Mich. Rev. Cr. Code, comments at 302.



 



2.  H.R.S. §406-61.